Industry Professionals Weigh In On NAR Settlement

By NICOLE MURRAY

The $418 million settlement that has rocked the real estate industry since the National Association of Realtors announced it will remain a hot topic as the impact of the agreement plays out.

NAR’s Chief Economist Lawrence Yun even went so far as to predict the effects of the settlement will continue to make headlines next year. He spoke about the changes to the traditional commission structure at the National Association of Real Estate Editors conference in June.

Yun said when mid-August hits and sellers are no longer on the hook to pay commissions for buyer’s agents, there could be serious implications for first-time buyers without generational wealth.

“In the past, as a potential first-time buyer, you were just looking for the right home because you knew that the buyer’s agent would be paid by the seller, so that was the case. But now, with the lawsuit settlement, people have to wonder whether the first-time buyer, first-generation buyer, needs to come up with additional cash, or if they decide to go on their own, whether they are going to be taken advantage of by the home sellers,” Yun said.

“We will see how everything plays out. There are many real estate brokers and real estate agents who think that they can convince home sellers of the value of offering compensation to the buyer’s agent or providing a similar concession to the buyers so they can pay their buyer’s agent.”

If a judge approves the agreement, potential homeowners must sign buyer’s agent compensation agreements. It will also be optional for sellers to pay for buyer’s agent commission and those costs cannot be marketed on the Multiple Listing Service.

The Mortgage Note attended “The NAR Settlement & Institutional Impact On Shifting Agent Compensation” webinar reviewing the rules agents will need to adjust to.

Lisa Piccardo, vice president of brokerage and team consulting with T3 Sixty, led the webinar. We have added the perspective of industry professionals who have talked to us about this topic.

Buyer’s Agreements

According to the presentation, only 40% of agents were previously getting buyer’s agreements signed and most would get the signature at the time of closing.

There are a few changes that updated agreements bring, including that buyer’s agents can no longer market their services as free while fees and commissions must be clearly stated.

Gabriella Lisi, a realtor associate at RE/MAX Revolution in New Jersey, has been using updated agreements and said she sees this as beneficial for all parties involved.

“I only see this as a positive because the new agreement goes into greater detail on what everyone’s responsibilities are throughout the homebuying process,” explained Lisi. “Realtors put in a lot of work before we get paid, and this agreement is a great tool to show what we are providing and also what we expect in return.”

In addition, Piccardo explained it is the responsibility of the buyer’s agent and their brokerage to ensure these agreements are signed before doing business. There will not be any penalties for the seller’s agent if the compensation form is not handled correctly.

Rob Jensen, broker/owner of the Rob Jensen Company in Las Vegas, said having buyers commit to an agent will be a good thing because it will solidify the business relationship.

“Buyers are not going to work with five different realtors at the same time anymore, which does happen more than you think,” Jensen said. “It will clearly lay out what the agent is responsible for and what is expected from both parties.”

Pros and Cons of the New Pay Structure

Pros include consumer transparency for agent services and fees, clear representational boundaries, and added buyer-broker value, according to Piccardo.

Shant Banosian, executive vice president of sales at Guaranteed Rate in Waltham, Massachusetts, said that transparency is important.

“This is how it is in every other business,” Banosian said. “For title insurance, a new car, you see the breakdown of everything you are paying for and why. It is a good thing to happen in real estate, so things are spelled out across the board. But I disagree in saying it was not that way before.”

Cons include short-term confusion about how buyer agents are paid and some agents will struggle to secure clients.

Jenson said, “The real estate agents who cannot articulate their value will struggle and may leave the business altogether. However, having high-quality agents make up the majority will only offer a better experience for the consumer.”

An agent from Long Beach Island who has eight years in the industry echoes Jensen’s sentiments, saying that the real estate industry will condense.

“I am finding that these seasoned agents are struggling to change their language and articulate why these agreements are important because they have been doing business the same way for years,” he explained.

Concessions

A loophole to help buyers strapped for cash is concessions.

According to Piccardo, sellers may offer concessions via MLS for buyer closing costs but it cannot be specifically advertised for buyer agent compensation. Only a specific dollar amount or percentage can be posted.

Additionally, buyer’s agents cannot be paid more than the pre-negotiated amount stated in the agreement. This means if a bonus or other incentive puts an agent’s pay over the amount that is in the contract, then the agent must ask for an adjusted agreement or the surplus will be given to the buyer as a credit.

There is one major group industry professionals predict will be affected most if sellers choose to not offer concessions: first-time home buyers.

“This group is usually putting down 3.5%, they don’t have equity from another home and don’t have as much money saved as someone who is more established,” Lisi said.

Originally, Banosian had expressed concern that veterans would also be left behind because this group was not allowed to pay for a buyer’s agent commission. That has since been adjusted by the VA to allow them to make the payment.

However, Piccardo stated a major concern is that this group of buyers usually does not have the funds for this added cost.

For Sellers Who Do Not Want To Offer Concession/Commission for Buyer’s Agents.

Piccardo said that agents should recommend sellers revisit sales, comps, and pricing if no concessions are offered.

Before taking that step, she said it is best to explain that this move could limit the pool of potential buyers, especially for first-time home buyers and veterans who may not be able to afford the added cost.

Lisi agrees with this advice.

“I think it’s unwise to offer nothing,” explained Lisi. “You may save on that extra commission, but it will also result in fewer showings, it could take longer to sell your home, which could ultimately lead to price drops, and then becoming desperate to close with whoever will make an offer.”

Piccardo added that if buyers attempt to complete the homebuying process without a buyer’s agent to save on the added cost, more responsibility will fall on the seller’s agent.

“Accessibility is going to be important. If buyers don’t want to sign the agreement, then the listing agent will have to handle all the leads and be readily available to show the home to interested buyers,” said Piccardo.

Despite the likelihood that many buyers will attempt to not have a buyer agent, Banosian said he hopes this trend is short-lived because it does not benefit anyone.

“These types of purchases are important life decisions and to do it without representation is risky to say the least,” said Banosian. “I am in the real estate business, have closed 40,000 transactions, and still have used an agent for any piece of real estate I have purchased because I need the help.”

No Third Party App

With the new limitations on what can and cannot be posted on Multiple Listing Services sites, many real estate industry professionals have heard whispers of a possible loophole: a third-party app where commissions can be publicly listed.

Lisi, who heard rumors of this possible loophole, said, “This could help avoid agents from making and/or answering hundreds of calls asking about commissions and concessions. It could be a huge time saver.”

However, during the webinar, Piccardo said it has been declared that a non-MLS portal, social media group, or third-party app cannot be created for the purpose of listing broker compensations.

Jules Zaphire, a real estate professional at The Pantiga Group who is licensed in New York and Connecticut, said, “Agents are going to have to make hundreds of calls to get the information they need. Could communicating directly with an agent from the start possibly help the process? Possibly. But it could also slow things down.”

What Needs To Happen Moving Forward

For this transition to seamlessly occur, Piccardo said a few things must occur across the real estate industry moving forward.

That includes leveraging the marketing of seller concessions when appropriate for a seller client, especially when trying to appeal to first-time home buyers, FHA, or veteran buyers. Also, forms need to be 100% aligned with the new rules and remove broker-to-broker commission sharing.

Brokers, managers, and agents need to be trained on all the upcoming changes so they can properly articulate information to their clients.

According to NAR’s settlement website, the policy changes will take effect on August 17.

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